We analyze how bank profitability impacts financial stability from theoretical and empirical perspectives. We start by developing a theoretical model that explores the relationship between bank profitability and financial stability. This model elucidates how increased profitability can strengthen a bank's resilience to economic shocks. Additionally, it addresses the potential risks linked to excessive profit-seeking behavior. Excessive profit-seeking behavior can lead to risky lending practices and a focus on short-term gains, which may undermine long-term stability. As a result, our analysis underscores the critical need for a balanced approach to profitability. It is essential for banks to pursue sustainable growth while simultaneously mitigating systemic risks. By fostering a financial environment that values long-term stability over fleeting profits, we can promote a healthier banking sector that contributes positively to the economy as a whole.

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Profitability and Stability https://link.springer.com/chapter/10.1007/978-1-349-11786-4_15

Profitability & Financial Sustainability https://www.pipestone.com/resources/profitability-financial-sustainability/